Selling home - where to put proceeds for 5 years

[Badger19]

My wife and I recently retired in our late 50s with 2 homes, one where we worked and one where we played. Having no interest to keep up 2 homes in retirement and with interest in snowbirding with our travel trailer in the winter, we are selling our "work" residence and will net about $325K. We are fortunate to be healthy, debt free, have sizable tax advantaged investments north of 3 Mil, a large cash safety net, defined benefit pensions and retirement healthcare. We love our "play" house, but expect to buy something else more urban in our mid 60s. Perhaps we'll sell the play house, but will still intend to spend most of the proceeds from the work house on our true "retirement" home. We were about 50/50 bonds/equities before the recent market pull backs. With a 5 year horizon and some flexibility around that, what prudent investment suggestions might you offer?

Badger19

 

[WyomingLife]

I'm sure you've thought of tax considerations already -- sale of a second home, a potential 1031 exchange, etc. I'm neither a tax professional nor current on taxation of real estate, but just wanted to flag this.

It doesn't sound like you need the proceeds from the sale of your "work" residence for lifestyle purposes. Instead, your primary purpose is to ensure that those proceeds are basically still there in 5 years, and not too much degraded by inflation (if at all).

I would look at it two ways. First, you could just effectively keep the $325K in a CD, savings account, or MM fund. Something super conservative. Then again, however, you say you already have a large cash safety net.

Or second, is there any reason you can't put the proceeds into a non-qualified account and invest it?

I guess what I'm struggling with is that under all scenarios, it doesn't sound like you are going to be hard pressed to come up with the cash to buy a house in 5 years.

 

[Badger19]

As I understand it there are no tax consequences on a primary residence if held at least 2 years which we would eventually meet with the play house.
I agree we may not need these proceeds for the future purchase, but pulling a large sum from the tax advantaged accounts would sting a little on taxes. Wondering if investing at the 50/50 would be prudent given the timeline flex and potential equities surge post covid, although no crystal ball for that.

 

[mrfeh]

CDs, if you want to keep the money safe.

I wouldn't put more than 20% in equities.

 

[statsman]

For someone who appears to have easily won the game by the numbers, not sure why you would need the advice. But I'll second the CDs suggestion.

 

[swaneesr]

My wife and I are approaching a scenario similar to this in about five years. The numbers are a little different - pensions same, tax advantaged accounts a little lower, primary residence higher value, play house mortgage at 60k.


There are no guarantees, but the stock market is on sale. It seems you are in position to invest the proceeds 50/50 in a boring total stock/ total bond fund for the next five years. Market timing is always a bad idea, but given the current market, you should have a decent amount of the work house money or a lot more when you need it in five years. Your overall situation is very good and that allows you to accept the additional risk.

Swanee

 

[mrfeh]

There are no guarantees, but the stock market is on sale.

What makes you say this? Despite the recent pullback, both bonds and equities are still quite expensive.

 

[swaneesr]

What makes you say this? Despite the recent pullback, both bonds and equities are still quite expensive.

Perhaps I have a different time frame in mind than most people. Short term, I can understand why you would think equities are quite expensive.

Longer term, let’s say five years from now, will the market have moved generally higher?

Let me put this another way. Do you feel the Dow peaked in early Feb 2020 at over 29,000 never to return again? I only mention the DOW because of the long term data available.

If you believe the market will recover and it is only a matter of waiting out the current drama of the day, than equities are “on sale”. The market moves higher. It is an ugly ride, but if you have the ability to filter out the noise, you will be rewarded.

Respectfully, we have been through many of these bubbles and corrections. They always end with the market recovering. Investors who do not cut and run or try to time the market are rewarded.... eventually.

Swanee

 

[stephenson]

Equities, compared to 2019, are on sale.

Five years hence they will likely look like they were on sale on May 5, 2020.

 

[mrfeh]

Perhaps I have a different time frame in mind than most people. Short term, I can understand why you would think equities are quite expensive.

Longer term, let’s say five years from now, will the market have moved generally higher?

Let me put this another way. Do you feel the Dow peaked in early Feb 2020 at over 29,000 never to return again? I only mention the DOW because of the long term data available.

If you believe the market will recover and it is only a matter of waiting out the current drama of the day, than equities are “on sale”. The market moves higher. It is an ugly ride, but if you have the ability to filter out the noise, you will be rewarded.

Respectfully, we have been through many of these bubbles and corrections. They always end with the market recovering. Investors who do not cut and run or try to time the market are rewarded.... eventually.

Swanee

Equities, compared to 2019, are on sale.

Five years hence they will likely look like they were on sale on May 5, 2020.

There's a very good chance equities will be higher in 5 years. But, it is far from a certainty.

If the OP doesn't want to run the risk of his balance being lower, he should avoid equities.

 

[swaneesr]

There's a very good chance equities will be higher in 5 years. But, it is far from a certainty.

If the OP doesn't want to run the risk of his balance being lower, he should avoid equities.

Very true - not a certainty.

It would appear the OP has the overall financial resources to tolerate some risk. We all decide what amount of risk is tolerable.

Note that when I speak of equities, I am talking about broad index funds with low fees. Not purchasing individual stocks.

Swanee

 

[Badger19]

Thank you all for your perspectives. If one ascribes to the old addage, buy on bad news, sell on good, it would seem now might be an opportunity to still buy, given enough time for good news to lift the markets. I believe their is pent up demand that could provide this lift, when covid and related fears ease. I have inflation concerns also with a recovery which wouldn't bode well with CDs or bond funds. With a higher risk tolerance that I believe my position affords me, perhaps now might be a window to bump up to 55% equities. Anyone seeing any covid recovery blended funds being marketed?

 

[The Cosmic Avenger]

Five years feels fairly safe to me, but just as important as your five-year target is, how flexible is that target? If equities are still down, are you willing to wait another year, or two, or five? If you feel like you could be flexible, then the risk is much lower. If your plans are pretty much set in stone, then I'd be concerned about investing in anything as volatile as stocks for that time frame.

 

[Badger19]

Good point. As it stands today, 2-3 years of flex.

 

[OldShooter]

Thank you all for your perspectives. If one ascribes to the old addage, buy on bad news, sell on good, it would seem now might be an opportunity to still buy, given enough time for good news to lift the markets. I believe their is pent up demand that could provide this lift, when covid and related fears ease. I have inflation concerns also with a recovery which wouldn't bode well with CDs or bond funds. With a higher risk tolerance that I believe my position affords me, perhaps now might be a window to bump up to 55% equities.

From a distance, I would say that your time horizon is a little short for equities, but getting closer and seeing your financial situation, pensions, and your mental attitude, that view changes. Also, as you observe, today's on-sale stock prices are likely to look pretty good viewed from a few years into the future. So yes, equities.

Anyone seeing any covid recovery blended funds being marketed?

Ack! But not this way! Not blended, and for sure not some flaky newly-invented fund that is designed primarily to attract naive buyers. Nobody knows where this thing is going in the big picture or for individual companies. So this kind of fund is not only a dartboard exercise, it is also deliberately not a diversified dart board. Our choice for equities is VT/VTWAX, but if you want some home country bias then your favorite blend of total US and total international market funds will satisfy.

(Incidentally, at 72YO we were 75% equities before the current excitement. I haven't bothered to check, but my guess is that we are in the 65% range now. With TIPS on the fixed side, we sleep well.)